New York State Comptroller Thomas P. DiNapoli has aggressive plans to expand the New York State Common Retirement Fund’s investments in environmental, social, and governance (ESG) to $20 billion over the next 10 years.
As part of the plan, DiNapoli said he will create a multi-asset climate solutions program that will work with managers, consultants, and index providers to meet the fund’s sustainability goals. The fund will assess its exposure to climate-heavy risk sectors, including energy and utilities, transportation, materials and buildings, agriculture, food and forest products, and financials.
Additionally, the fund will develop new evaluation tools, hire ESG experts, and help managers, data and index providers, and consultants meet asset class-specific metrics as part of the program.
“The Fund has taken many steps to assess and address climate risk already, but clearly more must be done and done quickly,” said DiNapoli. “This is a proactive plan to mitigate climate risk, capitalize on opportunities in the growing low-carbon economy and protect the fund’s long-term value.”
ESG Gaining in Importance
According to a survey of subscribers to Inframation, an Acuris company, nine out of ten responding agreed that in the past 12 months, ESG criteria has become a more important part of their investment decision-making.
Poor governance and environmental problems present themselves as roadblocks to profitability, but research finds no direct link between better ESG credentials and the improved financial performance of private infrastructure companies. In the survey, about 25 percent of respondents cited investor or LP requirements as the reason for increasing ESG consideration.
Furthermore, about 50 percent of respondents said “improved brand and reputation” was the main reason for the shift. In addition, larger often institutional or pension-based LPs are responding to changes in society.
ESG ETF to Consider
One ETF to consider is the Xtrackers MSCI USA ESG Leaders Equity ETF (NYSE Arca: USSG), which was developed in collaboration with Ilmarinen, Finland’s largest pension insurance company. The expense ratio for USSG is 0.10%, which is well below the average cost of 0.39% for ESG funds, making it ideal for investors who are also seeking a low-cost solution to add ESG to their portfolios.
“With USSG, we now bring the ability for investors to access domestic equity,” Fiona Bassett, Global Co-Head of Passive Asset Management and Global Co-Head of Product, DWS Group, told ETF Trends. “Critically, it will be the most cost-effective ESG ETF in the marketplace.”
“We would like for our clients to do well and do good, but not pay a premium for that,” added Bassett.
While ESG ETFs are still vying for market share in the ETF space, it appears to be progressing with the advent of new products meeting demand. In fact, sustainability is one DWS’s four core values, not only from an investment perspective, but also as a financial market participant.
USSG seeks investment results that correspond generally to the performance, before fees and expenses, of the MSCI USA ESG Leaders Index. In order for companies to be included in the fund, the methodology includes a comprehensive screener that filters out alcohol, weapons, gambling, and other controversial products or activities.
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